A healthy dose of reality

Investors and advisors both will be looking to get some relief from the selloff last week.  Futures are indicating a higher open, but closes are all that matter.  The fairytale view everyone had in January has now been subjected to a healthy dose of reality.  The underpinnings of the current market are complicated.  Politics aside, the economics of tariffs and counter tariffs are real.  In a global economy it means changes to how businesses conduct commerce, but it also empowers the populists everywhere who have adopted the surname “First.”

Though remote at this point, a trade war would hurt all the participants, including China who understands the math of social unrest.  Monetary policy is weighing in as well.  The Fed has embarked on a path to normalize short-term rates but will need to be measured in its efforts to avoid a recession.  Inflation is a part of the dual mandate, but it seems elusive. There seems to be some evidence of its existence, but nothing definitive. And a flattening yield curve is also a cause for concern.   

Market commentator Howard Barlow opined this over the weekend:

“If 2532 (SPX) intra-day breaks, 2500 becomes psychological support, and that failing, the 2461/25 handles enter the gym.”  

We’ve entered a period where the market appears to be range bound.  But with trading today occurring in the lower part of the range, a break below could further erode confidence in what has been a very good period for market participants.